Floating rate note

A floating rate note is a form of security that carries a variable interest rate which is adjusted regularly by a margin against a benchmark rate such as LIBOR.

A floating rate note (FRN) is a form of security, invented in the euromarkets and adopted elsewhere, that carries a variable interest rate which is adjusted regularly (at one to six-monthly intervals - whatever is preferred by the issuer) by a margin against a benchmark rate such as LIBOR (the London Inter-Bank Offered Rate of Interest).

Issued for three years or longer, FRNs are popular during periods of increased volatility in interest rates, when lenders may be reluctant to lend funds cheaply at a fixed period for a fixed rate.

For example, the issuer might agree that their FRN will pay 50 basis points (0.5%) over the rate of LIBOR. So if LIBOR was 6% over a six-month period (it is usually worked out as an average), the FRN would pay 6% plus the 0.5% spread, or 6.5% in total over the next six months.

A straight, or 'vanilla', eurobond would carry a fixed rate of interest regardless of LIBOR. One variation is an inverse FRN. Interest payments on these rise as interest rates fall, and vice versa.

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021